I think removing negative gearing would produce unforeseen consequences. There would also be a "panic" playing out.
Quite a few people that talk about negative gearing don't know what it actually is. Recently I talked to a person that talked about buying and negative gearing a property where rental income was supposed to be in excess of P&I repayments.
I do believe there would be panic for a little while, and I reckon there would be a short window of great opportunity while people derp around and wonder what to do next. Unfortunately FHBs would not in general benefit, because valuers are very cautious and would overshoot their write-downs of valuations to below what the sellers would accept. Renters would not benefit in the short term and would lose out somewhat in the long-term.
It is quite possible to have a property that is negatively-geared despite the fact that rental income exceeds P+I payments. The condition for a property to be negatively geared is: (Operating expenses + Interest + Depreciation) > Gross rental income.
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
Thats probably because you don't understand negative gearing or deliberately misrepresenting it. Removing NG will not be "$10,000 per year tax deduction foregone". It will merely be deferring the tax deduction.
Currently, if a PI paid $10,000 LMI on a property purchase, that cost is spread out over 5 years. If the government decided to change the rule to make it tax deductible in the first year, do you think there will be a massive increase in the number of property investors? It was always tax deductible ... just a change in timing.
No, I've been over that back on page 324 but I don't blame you for not reading every post. I understand what you are saying. However, the ability to make the tax deduction immediately helps the investor to carry the property through the early expensive years. Additionally, some investors sell without making a profit and many investors have no plan to ever sell, and instead live off the retirement income.
The point is that the "average" NG investor claims $200 per week in deductions. I'm guessing the average first year investor would be up around the $400 per week mark. You don't think that's an incentive?
Ah, so you only have a problem with 'other people' doing it.
Do as I say, not as I do? What's precarious about only paying the tax you are required to pay?
I have 'a problem' with it sounding like such a marginal strategy for eking out an existence.
So as I said, "Better you than me."
Though I fully expect you'll come back with all sorts of fancy calcs telling me just how come when you are leveraged 90% plus, it is a really GREAT strategy? ...
A Professional Demographer to an amateur demographer:"negative natural increase will never outweigh the positive net migration"
The point is that the "average" NG investor claims $200 per week in deductions.
That was a couple of years ago. It would be much less now after the fall in interest rates.
With sub 5% interest rates, there wouldn't be so many negatively geared investors left.
herbie
21 Aug 2014, 10:48 PM
I fully expect you'll come back with all sorts of fancy calcs telling me just how come when you are leveraged 90% plus, it is a really GREAT strategy? ...
It's always a good strategy to not pay more tax than necessary, regardless of leverage.
Ah, so you only have a problem with 'other people' doing it.
Do as I say, not as I do? What's precarious about only paying the tax you are required to pay?
I've no issue with your tax minimisation strategy at all.
It's precarious because the amount you can depreciate tapers off substantially over the years. From the ATO:
Quote:
The diminishing value method assumes that the decline in value each year is a constant proportion of the remaining value and produces a progressively smaller decline over time.
If you're struggling to stay CF+ now, it's not looking that rosy, especially considering that rents are beginning to slide.
"It were not best that we should all think alike; it is difference of opinion that makes horse races." - Mark Twain on why he avoids discussing house prices over at MacroBusiness. "Buy land, they're not making any more of it." - Georgist Land Tax proponent Mark Twain laughing in his grave at humourless idiots like skamy that continually use this quip to justify housing bubbles.
What's desperate about minimising tax? I only pay the tax I am required by law to pay.
Why do you deliberately choose to pay more tax than you are required to pay? Are you a charity or something?
I'll let you into a secret... the ATO doesn't think any more highly of you just because you choose to pay unnecessary tax.
I reckon you're a sucker for paying more tax than required!
No - With that particular person it was simply throwing random words around. This wasn't an experienced investor, this was a person who was about to default on their family home and still wanted to buy an investment property - with no prior experience in property investment.
I don't see anything strange with tax minimisation. I see the issue with NG on existing property. It introduces extra money into the equation that shouldn't be there and causes a distortion.
If there was no distortion from NG, it could be painlessly removed tomorrow. This isn't the case.
Let me assure you that this isn't one of those shady pyramid schemes that you've been hearing about. No sir, our model is the Trapezoid which guarantees each investor an 800% return within hours. Those who can, do. Those who can't, teach. "It's an itchy blanket, it's designed to remind you how lucky you are"
That was a couple of years ago. It would be much less now after the fall in interest rates.
With sub 5% interest rates, there wouldn't be many negatively geared investors left. It's always a good strategy to not pay more tax than necessary.
On the other hand, prices have risen in the main investor markets of Sydney and Melbourne where they have been piling in. So there are lower rates but the yields are getting worse. To say that there wouldn't be many NG investors left is simply wrong. I'll take a bet that more than half of investors are still NGd when the next figures come out. It's likely to be alot more than that but I prefer a sure bet.
On the other hand, prices have risen in the main investor markets of Sydney and Melbourne where they have been piling in. So there are lower rates but the yields are getting worse. To say that there wouldn't be many NG investors left is simply wrong. I'll take a bet that more than half of investors are still NGd when the next figures come out. It's likely to be alot more than that but I prefer a sure bet.
"It were not best that we should all think alike; it is difference of opinion that makes horse races." - Mark Twain on why he avoids discussing house prices over at MacroBusiness. "Buy land, they're not making any more of it." - Georgist Land Tax proponent Mark Twain laughing in his grave at humourless idiots like skamy that continually use this quip to justify housing bubbles.
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